SEC’s Clayton Endorses Improved Financial Reporting

By
Stephen Barlas

February 1, 2019

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Securities & Exchange Commission Chairman Jay Clayton told the Senate Banking, Housing, and Urban Affairs Committee on December 11, 2018, that “we can do a better job around disclosure.” He was responding to complaints from Sen. Jack Reed (D.-R.I.) about General Motors buying back company stock—which boosts the price of stock top executives hold—at the same time the company was cutting up to 14,000 jobs and idling five automotive plants.

The company has spent $10.6 billion since 2015 buying back its own shares, according to filings with the SEC. Reed and Sen. Sherrod Brown (D.-Ohio), the top Democrat on the committee, pressed Clayton to agree to change a rule the SEC established 36 years ago that allowed stock buybacks as long as they aren’t “manipulative.” Clayton agreed the agency has the power to change that rule. But instead of committing to doing so, he instead argued that companies like GM have to do a better job of communicating why they’re buying back stock.

In making that point, he referred to the current financial disclosure system requiring companies to explain in financial reports how they’re going to spend money on plants, property, and equipment. “In this economy, we should be driving disclosure toward human capital, intellectual property, supply chain management, and relationships with vendors,” Clayton said. Look for Democrats in the Senate and in the House to push stock buybacks and financial reporting as an issue in 2019, especially as newly energized Democrats control the House.

SEC LOOKING AT CORPORATE LOAN PACKAGING

Securities & Exchange Commission Chairman Jay Clayton has expressed concern about the level of corporate debt and its packaging into collateralized loan obligations (CLOs). At hearings on December 11, 2018, Sen. Sherrod Brown (D.-Ohio) referred to a statement former Federal Reserve Chairman Janet Yellin made the day before the hearing in which she said high levels of corporate debt could prolong a recession. Brown said, “Leveraged lending and CLO investors include hedge funds, mutual funds, and other market participants under SEC oversight.” Clayton agreed corporate borrowing was a concern and said, “We began to look at this issue in detail four or five months ago.”

Stephen Barlas has covered Washington, D.C., for trade and professional magazines since 1981 and since 1984 for Strategic Finance and its predecessor Management Accounting. You can reach him at sbarlas@verizon.net.